| Open | 4.45 |
| High | 4.87 |
| Low | 4.30 |
| Mkt cap | 13.20B |
| P/E ratio | 32.95 |
| Div yield | 3.38% |
| Prev close | 5.26 |
| 52-wk high | 5.80 |
| 52-wk low | 3.61 |
The policy:
New Zealand’s long-awaited zero carbon bill will create sweeping changes to the management of emissions, setting a global benchmark with ambitious reduction targets for all major greenhouse gases.
The bill includes two separate targets – one for the long-lived greenhouse gases carbon dioxide and nitrous oxide, and another target specifically for biogenic methane, produced by livestock and landfill waste.
Launching the bill, Prime Minister Jacinda Ardern said:
Carbon dioxide is the most important thing we need to tackle – that’s why we’ve taken a net zero carbon approach. Agriculture is incredibly important to New Zealand, but it also needs to be part of the solution. That is why we have listened to the science and also heard the industry and created a specific target for biogenic methane.
This policy is over and above what is effectively a carbon tax.
Then, the commercial reality:
Rio Tinto has said it will close the Tiwai Point aluminium smelter.
The company said in an announcement on Thursday it would start planning for the eventual closure of New Zealand Aluminium Smelters (NZAS) following a strategic review which “showed the business is no longer viable given high energy costs and a challenging outlook for the aluminium industry”.
The closure would result in the direct loss of 1000 jobs, with 1600 jobs indirectly connected to the smelter also under threat, the company said.
Rio Tinto Aluminium chief executive Alf Barrios said the company recognised the closure would have a significant impact on the Southland community.
And also:
Meridian Energy Ltd [NZX:MEL] has fallen by 14% in trading today, down to $4.57 at the time of writing.
Meridian is one of New Zealand’s largest electricity generators. It has a prominent presence in the renewable-energy market, operating a mix of hydro and wind power.
Meridian currently has a market cap of $13.20 billion.
Why has the [NZX:MEL] share price plunged?
Market sentiment has taken a turn for the bearish today. Rio Tinto [ASX: RIO] has just confirmed that it is discontinuing its aluminium-smelter plant at Tiwai Point.
Some key takeaways:
- Tiwai Point has historically been a power-hungry operation. It consumes around 12% of New Zealand’s total energy supply.
- In 2019, the smelter registered a $46 million loss. This was blamed on rising power and transmission charges.
- Today, Rio Tinto declared that ‘the business is no longer viable given high energy costs and a challenging outlook for the aluminium industry.’
- Meridian Energy is the largest supplier of energy to Tiwai Point. Its contract will now end on August 2021.
- 1000 jobs in Southland will be lost, with another 1600 jobs indirectly connected to the industry also at risk of being cut.
Where could [NZX:MEL] go from here?
Right now, the mood is grim in the power industry.
Meridian has taken a double-digit hit in share price. This knock-on effect has also impacted competitors like Contact and Mercury.
Given that Tiwai Point was such a big consumer of Kiwi power, excess supply may mean a slump in energy revenue.
The sentiment will be negative for the short- to medium-term.
Then, the fantasy:
The Government will support the Southland economy in the wake of multinational mining company Rio Tinto’s decision to follow through with its long signalled closure of the Tiwai Point aluminium smelter.
“This day has unfortunately been on the cards for some time now, but nevertheless the final decision is a blow to Southland and all those who work at the smelter,” Grant Robertson said.
“The smelter supports hundreds of jobs in Southland and the Government will work with the local community to support economic development in the region to help offset this loss.
“Rio Tinto has indicated it wants to work with the Government to support the community during the wind down of the smelter.
“As we have done in Taranaki, we will support a just transition to more job opportunities. We know the strengths of Southland and we want to build on them in areas such as agriculture, aquaculture and manufacturing. There is also an opportunity to support other energy intensive projects like green hydrogen and data centres.
“There is a degree of inevitability to the decision, as Tiwai has been on the market since 2011, and former Prime Minister Bill English told Rio Tinto in 2013 there would be no further taxpayer money provided.
“Since the smelter opened taxpayers have been subsidising Rio Tinto to keep it open, either directly or indirectly through cheaper power, and Emissions Trading Scheme allocations of over $48 million per year. The company has made the decision not to keep operating without further subsidies.
“Rio Tinto globally has been battling decreasing aluminium prices and is facing similar issues in other countries.
“Given the challenging economic situation caused by Covid-19 it is disappointing Rio Tinto has chosen to close the smelter at this time especially given the support New Zealand has shown the company and how profitable they are globally,” Grant Robertson said.
“Rio Tinto’s decision not to extend their generous power contract with Meridian will flow through to the rest of the market,” Megan Woods said.
“Eventually it will free up around 13 percent of total power generated in New Zealand which will relieve some pressure to build new generation. The increased supply will also have a positive impact on prices.
“It is disappointing that Rio Tinto is deciding to close one of the world’s lowest carbon aluminium smelters, in favour of keeping open coal plants.
“I also want to make clear that the Government expects Rio Tinto to meet their obligations for clean-up of the site (an estimated $256 million) and do the right thing on the dross,” Megan Woods said.
